For those people who have offered to buy a dwelling without having a firm sale on your present residence------ beware!

If you have a mortgage in your present property, normal lending institutions will not approve the mortgage on your new dwelling until your old house is sold. Some lending institutions will approve the new mortgage, however, not the rate of interest until the old house sells. Still other lending institutions will approve the mortgage and the rate however, they will take into consideration both the payments on the old as well as the new mortgage within your debt service ratios; if you can’t prove you can afford both houses, the mortgage will be declined.

Where possible, make your offer conditional upon selling your home within a certain time frame (60-90 days). I would strongly recommend you sell your old house through an aggressive real estate agent and not by yourself. The Real Estate Companies have proven over and over again their superiority in marketing. Discuss with your Realtor the advantages of buying down the mortgage rate (decreasing the rate) for the potential buyer, or offering to pay for closing costs to any potential purchaser. The greater the panic to sell, the more goodies you should offer. It is amazing how many people would buy a home, if the Vendor were to pay for a new survey and legal fees. Vendors are not supposed to be involved in the purchasers’ down payment, however there is nothing to prevent Vendors from participating in lower mortgage rates or lower costing legal fees. Some Vendors may also be in a position to "take back secondary financing" which could save the CMHC high ratio premiums.

For those of you who feel you must buy without first selling their existing home, I always advise to be ready to rent the present dwelling and prepare for an equity take-out loan to the maximum carrying power of the rental income. As an example, your home is presently listed for $105,000. You present mortgage is $30,000. In case you can’t sell, you should be able to rent for $800 per month. That rental income should pay for $70,000 worth of mortgage, and the property taxes. Since you only owe $30,000, you should be able to borrow an additional $40,000 without it costing you anything (no increase in cashflow). You can now apply this $40,000 towards the down payment on the new house. Most lenders will go along with a proven rental (lease).

If the new property is being purchased for $200,000, as an example, and supposing you have another $10,000 in cash, this would allow you to shop for a conventional mortgage of $150,000. You should to take a mortgage term that will coincide with be leased property. In other words, if your renter was prepared to rent for three years, you should also take a three-year term on your new residence mortgage. If your renter is only prepared to rent for one year, you also should take a one-year term mortgage.

It is still far advisable to sell your present dwelling before you buy the new house, however if this is not possible, the above should give you an indication of what is possible within the confines of financing the new house.